Earning an EBITDA of HKD 221 million ($28 million), the first positive EBITDA ever, and with attendance topping rival Ocean Park again, Hong Kong Disneyland finally shows a prospect for profiting. High growth it may seem, as demonstrated by the park’s 13% year-over-year attendance figure, the 520 million attendances merely match its level in 2005. However, after five years of operation, the Hong Kong Disneyland is yet to break even on its income statement. Its operation in 2010 saw a net loss of HKD 718 million ($92 million). By contrast, its rival in Hong Kong, Ocean Park, recorded a surplus of HKD 82million ($10.5 million). Although Hong Kong Disneyland is confident the park will become profitable in 2014, I doubt if it could overcome the three challenges ahead. In my opinion, the future growth is likely to be only moderate, if not modest.
First of all, the growth in local visitors is probably modest in the future. The number of local visitors was about 1/3 of Disneyland’s total visitors, or about 1.6 million in 2010. With a population of only 7 million in this city of finance, it is unlikely to see a hike in the number of local visitors with around 40% of the residents being less than 35 years old. Other reasons that local residents won’t visit the park multiple times include the park’s small size, lacking in attractiveness and higher ticket price. The 126-hectare Disneyland is the smallest Disneyland in the world. As a result, visitors have to wait in longer lines and have limited choices of rides but paying 40% higher than Ocean Park each time. In addition, the Disneyland is more attractive to kids than teenagers and young adults, who would enjoy the more fascinating rides in the rival Ocean Park and Happy Valley in the nearby city of Shenzhen. These factors determine that the fastidious and utilitarian local residents are probably turning away from the Disneyland.
Aside from local visitors, I cannot feel optimistic about the future growth of visitors from Mainland China, now 42% of total visitors. Although it will take another five years for Shanghai Disneyland to open, there are a growing number of holiday choices for Mainlanders. In China, there are generally three types of theme parks. The first type is cultural-based theme park. This category includes Venice-like ancient water towns, theme parks that look like cities in ancient dynasties, and parks that exhibit minorities' cultures. The most successful one, Songcheng Park, attracted 3.8 million visitors in 2010, a 47% increase year-over-year. Its popular Song Dynasty-Style show has inspired a number of successful and unique performances in theme parks of this category throughout the country. The second type is movie-based themed parks. The ones worth noticing are still under construction by Huayi Brothers, a leading movie producer in China, aiming at make these parks the Universal Studios of China. The company has chosen Beijing and Suzhou (a large city close to Shanghai) for its theme parks. Considering the fact that the company has produced quite a few blockbusters, I would not be surprised if they are able to seize lion’s share of visitors. The third category is the ones similar with Disneyland. In Beijing, there are Shijingshan Amusement Park (in which many characters from Disney and Japanese Comics appear without authorization) and Happy Valley Beijing, which have attracted about 4.7 million visitors during the past year. In Shanghai, Jinjiang Amusement Park and Happy Valley Shanghai together served about 3 million visitors in 2010. And finally in Guangzhou & Shenzhen (close to Hong Kong), Happy Valley Shenzhen, Splendid China, Window of the World, OCT East and Chimelong Paradise & Water Park had a total attendance of more than 13 million in 2010. Furthermore, not only are the parks being controlled by OCT (Happy Valley Parks, Splendid China, Window of the World, OCT East) very profitable—enjoying a net profit margin of 15% or more, they are expanding into second-tier cities as well. These theme parks are attractive and convenient enough for Mainlanders. After all, if there is an awesome theme park right in your city, why bother going to Hong Kong? In addition, amusement parks abroad, such as Tokyo Disneyland, Tokyo DisneySea and Osaka Universal Studio in Japan, Everland and Lotteworld in Korea and Singapore Universal Studio in Singapore, are also feasible choices for those who want authentic foreign experiences during their trip.
Last, the problematic composition of board of directors poses a great challenge to the strategy making process. Currently, the 11 board members consist of 5 officials from Hong Kong SAR government, 4 from Walt Disney and 2 independent members. This is comparable to Euro Disney, where the board members mostly have American backgrounds rather than European backgrounds. Euro Disney, complying with the American rules and customs, experienced cultural gaffe when it refused to serve wines in its restaurants and requires English-only environment among its employees during its first year of operation. Even though these rules have since been modified, the American business model still does not seem to work well in Europe, with Euro Disney posting constant losses for the past five years. In contrast, Tokyo Disneyland’s board members are all from Japan. As a result, they are able to make sure that the strategies satisfy the Japanese taste and consequently the annual attendance of Tokyo Disneyland once surpassed their US counterpart in California. The company has enjoyed a great success under the Japanese-style management and strategies. That said, the current composition of board members in Hong Kong Disneyland may not be the optimal for strategy and decision making.
In conclusion, the diminishing growth prospect from local and Mainland visitors as well as the composition of its board members all raise red flags to the future of Hong Kong Disneyland. Unless it can successfully deal with these challenges, the Hong Kong Disneyland will struggle in its operations.